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Q: Can I take out a reverse mortgage and invest that money in an account that would pay a decent rate of return?
How much you’ll get depends on your age, home equity, and current loan rates.“You don’t want to gamble with your home equity,” says Tom Mingone, founder and managing partner of Capital Management Group of New York.First, a little background on how reverse mortgages work.And depending on the type of loan, the rates may be variable.If the house sells for more than the loan balance, you or your heirs get the difference.Over the long term, it’s likely to appreciate regardless of the amount you owe on it, he adds. Because the mortgage is secured by the value of the home, interest rates are much cheaper than for credit cards and personal loans — and the interest you pay is tax deductible.
It’s likely the cheapest money you’ll ever borrow, Edelman says. They’re often a budget stretch for young homeowners, but with a 30-year fixed mortgage, time is on your side.
The amount you can borrow is capped, typically less than 60% of your home equity.
For example, if you are 70, your spouse is 68, and you own a 5,000 house with no mortgage, you could get a 9,000 loan in the New York area, Mingone says.
If the house sells for less, you aren’t on the hook; the bank just takes a loss.
Now here’s why it would be hard to come out ahead by investing money from a reverse mortgage.
First, reverse mortgages are costly loans to pay back compared with traditional loans. “If the money is invested in anything that has capital gains or interest income, you’ll owe taxes on that,” says Mingone.